By Kingsley Omose
Recent news report that the Nigerian National Petroleum Corporation
(NNPC) has secured a prepayment of USD1.5bn from two oil trading
companies, Vittol Group and Matrix Energy, and in return for letting
them lift 15,000 barrels of oil per day for the next five years have
not come as a surprise.
Backed by Standard Chartered Bank, Africa Export Import Bank and
United Bank for Africa, the prepayment deal aptly called Project Eagle
will commence in August 1, 2020 and will see the two oil traders,
Vittol Group and Matrix Energy collecting a total of 27,375,000
barrels of oil over 1825 days.
Without delving too deeply into it’s convoluted funding structure
which in the past has come from NNPC’s handling of the 450,000 barrels
per day oil swap for refined petroleum products and for which it has
run a very opaque subsidy funding arrangement (talk about holding both
the knife and the yam), it has also dipped at will into oil sale
proceeds from it’s oil producing arrangements.
NNPC cannot categorically declare what it’s average production cost
for a barrel of oil is, and while oil prices were reasonably stable
and it could claim a production of at least 1.7m barrels of oil per
day through its oil producing arrangements, it could get away with
literally any spending entitlements it made at the expense of the
Nigerian people, that was until the oil price crash activated by
Covid-19 and the resulting economic crisis.
The oil price crash has resulted in the elimination of petroleum
products subsidy and to shore up oil prices from the low of less than
USD20 per barrel, NNPC has had to swallow the bitter pill of OPEC+
imposed reduced oil production from at least 2m barrels of oil per day
to 1.4m barrels of oil per day, resulting in cash crunch problems for
not only NNPC but also the oil revenue dependent FG, States and Local
So the Project Eagle deal is basically a cash borrowing deal by NNPC
using the readily available cash cow in it’s kitty, the National
Petroleum Development Company which is supposed to be Nigeria’s
version of Shell, Total, Chevron, ExxonMobil, but is in reality no
better than a glorified subsidiary with it’s oil production at NNPC’s
discretion to use at will.
It is from the daily oil production of NPDC that NNPC is taking the
15,000 barrels of oil per day to fund it’s latest cash binge claiming
the USD1.5bn will be used to fund, and in no particular order of
priority, payment of taxes to the government, payment of the
operational and capital expenditure of NPDC and repair of NNPC
refineries, and maybe whatever else catches the fancy of the NNPC
Now don’t ask me why oil produced by NPDC is being used by NNPC to
secure it’s payment of taxes or repair refineries that will probably
go into the history books as the only non-functioning refineries in
the world to have full compliments of staff and management and which
continue to incure financial losses yearly running into hundreds of
billions of naira.
I won’t be shocked if the National Assembly which two weeks ago was
probing into how the Interim Management of Niger Delta Development
Commission spent about N81bn questions will pass up the opportunity to
question NNPC managing director regarding details which could not be
gleaned from the various news reports on Project Eagle.
But in case the National Assembly manages to wake up to it’s oversight
functions over NNPC the questions below can help them understand a
little better what Project Eagle is really all about and what will
happen to the USD1.5bn, but if NNPC manages to escape the scrutiny of
the National Assembly over Project Eagle, it’s 18 or more Strategic
Business & Corporate Services Units cash guzzling units will still
need to survive Covid-19 and the New Normal.
- Who owns the oil in the first place, is it not FG as NNPC and by
extension NPDC, are 100% government-owned?
- How can NNPC be using oil produced by NPDC to borrow money to pay
taxes assumably to FG who owns both entities 100%?
- What portion of the USD1.5bn borrowed money will be used for tax
payments assumably to FG?
- What taxes will the money be used to pay (Petroleum Profit Tax,
- Why were these taxes not paid prior to now (are they last year’s or
the year before last outstanding taxes and if they’re backlog taxes
are breakdown of same)?
- What happened to the earnings from which these taxes should have
been paid (if they were diverted, spent on some other pressing needs)?
- What CBN Bank Account will these taxes now be paid into (Federation
Account for revenue sharing or NNPC special dedicated account)?
- What is the discount at which the oil is being offered to the oil traders?
- What is the budget of NPDC that requires borrowings to fund?
- What portion of the operational and capital expenditure of NPDC
requires the borrowed funds?
- What portion of the $1.5bn prepayment will be used for taxes, NPDC
operational and capital expenditure, and for repair of NNPC refineries?
- Which of the NNPC refineries at Kaduna, Warri and Port Harcourt (2)
will benefit from the $1.5bn prepayment?
- Will the 36 States and 774 LGAs partake in the sharing of the
portion of the $1.5bn meant for tax payments?
- What is the breakdown of the operational expenditure of NPDC to be
covered from the $1.5bn prepayment?
- What is the breakdown of the capital expenditure of NPDC to be
covered from the $1.5bn prepayment?
- What sort of repairs can be undertaken in any of the NNPC refineries
that can make any of them compete with the Dangote Refinery?
- What are the repair costs that can be undertaken in any of the NNPC
refineries that can make any of them compete with the Dangote
Kingsley Omose, a public policy analyst contributed this article from Lagos.